Loan growth at lowest in a decade

LOAN growth last year crawled to 10.3%, its lowest in at least a decade, reports Shakti Patra in Mumbai. The amount lent by banks — public, private and foreign — in FY16 was smaller at R6.96 lakh crore compared with R7.58 lakh crore in the previous year.

The loan books of private sector banks grew at a faster pace than at their public sector peers; the former also loaned more in absolute terms, probably for the first time.

The pace of non-food credit — or money lent to companies and individuals — lost momentum partly because stateowned lenders were focused on cleaning up their balance sheets and partly because opportunities to lend were few and far between. Between them, banks set aside R1.8 lakh crore as provisions for loan losses; this amount was R95,000 crore in FY15.

Moreover, since banks werereluctant to drop interest rates, it was cheaper for firms to borrow in the bond markets. On average, a AAA-rated PSU could pick up 10-year money at 50 basis points lower in FY16, according to data sourced for FIMMDA. As such, compared with Rs 4.04 lakh crore in FY 15, `4.6 lakh crore was mopped up by firms via bonds in FY16.

FY16 was the fifth successive year in which non-food credit grew at a slower rate compared with the previous year. The outstanding non-food credit at the end of FY16 was `74.29 lakh crore versus `67.33 lakh crore a year earlier.

“Our loan book shrank in FY16 because our primary focus was to recover bad loans,” Melwyn Rego, MD & CEO, Bank of India, observed after the bank posted a net loss of over `6,000 crore for FY16. Provisions during the year more than doubled to close to `14,000 crore. Gross non-performing assets for the banking system stood at `5.9 lakh crore, nearly twice the level of `3.1 lakh crore at the end of FY15.